Osmosis Updates from the Lab, February 08, 2023: Cross-Chain w/ Avalanche & Polygon, Red Bank Launch

Osmosis Updates from the Lab (UftL) occurs on alternating Wednesdays at 1 PM EST (5 PM UTC) on the Osmosis Zone Twitter Space. Replays are available on the Osmosis YouTube channel or the podcast. These expanded recaps are available on the Community Updates blog and the Osmosis Labs blog.

Welcome to the Lab!

This week guests from two major non-IBC ecosystems stopped by the lab to discuss going cross-chain with Osmosis, with Avalanche coming on Updates, and Polygon hosting a separate space with Osmosis and Axelar.

And, of course, Mars hosted a Twitter spaces launch party to celebrate the successful launch of the Mars Red Bank Outpost!

But first, some highlights from the ecosystem.

Osmosis Ecosystem Updates

Concentrated Liquidity (CL): The steady march toward a more efficient AMM continues. (For a more comprehensive overview, see the last UftL recap.)

The code for liquidity provision and swapping is largely complete, and both the core CL logic and the swap routing logic have been modularized for easier testing and integrations. Some work remains on fees and incentives, which have had to be completely reimagined to fit the non-fungible LP positions of concentrated liquidity. Once that is finished, testing and simulations can begin, and work can begin in earnest on the osmosis.zone front-end integration.

— Speaking of integrations, teams are encouraged to get in touch with Osmosis Labs if they want to begin playing with the code. Astroport is reportedly already working on yield vault integrations. 👀

Cross-chain Swaps: This feature will allow Osmosis outposts on other chains to route single-click, atomically executed trades through Osmosis from any crypto ecosystem. Outposts can be connected through IBC, of course, and Axelar can provide access to non-IBC ecosystems with its General Message Passing (More info is available in the last recap or the readme.)

The backend/CLI prototype for this is finished, but coding the front-end will take some time. It is being built by Nabla, the team that built the Sinfonia alt-Osmosis frontend for Bitsong.

Autonomy Network

Autonomy: This automation protocol enables limit and stop orders on Osmosis. Autonomy allows users to generate “Requests” for the execution of certain contracts (e.g. swaps) under certain conditions (e.g. oracle price of asset x ≥ n). Incentivized bots simulate all Requests offchain after every block, and Requests with successful, non-reverting simulations are then sent on-chain for execution in the next block.

— A governance proposal to upload the Autonomy contracts is likely coming in the next week or so.

Stable Transmuter: The transmuter allows projects to provide no-slippage swaps (discussed in October) between equal-priced assets, e.g. stables and pegged derivatives. The primary initial use will be to migrate the canonical USDC asset on Osmosis, axlUSDC, to the new Cosmos-native, non-wrapped USDC being launched by Circle on the upcoming Hub-secured generic asset issuance chain.

— Dy/dx has indicated an interest — once their sovereign Cosmos chain launches — in having its users convert their Ethereum USDC to Cosmos USDC with the transmuter, which will smooth out the onboarding UX.

Red Bank on Osmosis

Mars has launched on Osmosis! 🎊 Users can borrow and lend either on the community-hosted version of the frontend at mars.osmosis.zone (powered by Akash 🙏) or on the official Mars Protocol site.

The initial deposit caps were hit almost immediately after launch, so a recent Mars governance proposal roughly tripled them to 10M OSMO, 350K ATOM, and 1.5M USDC. As of this writing, the new caps on ATOM and USDC had already been hit, but there was room for 3.5M more OSMO. Users can therefore still deposit OSMO and collect incentives, and they can use that position to borrow more OSMO. (USDC borrowing limits seem to have been hit, but this may fluctuate.)

Mars Governance and Next Steps:
The current Mars governance proposal life cycle is a minimum of 10 days: 5 days on their governance forum, after which the proposal text is frozen for 2 days, and then put on-chain for a 3-day vote. There are currently no further deposit-cap raising proposals on the forum. However, anyone can submit proposals, so get posting!

Mars governance will also be activating leveraged yield farming at some point, at first with conservative credit limits on major assets. These restrictions can be relaxed as the system becomes more robust and better understood and as Mars stakers feel comfortable with the level of risk. Fully cross-margined Rover NFT credit accounts that can use LP shares as collateral — v2 of the Red Bank Outpost — will take longer to come online.

The Mars Launch is a big deal. Even in its base form, the Red Bank Outpost is already enhancing the Osmosis ecosystem, expanding access to capital and making DeFi more fun. In its mature form, it will allow Osmosis users on any chain to access CEX-like leverage on a DEX.

Going Cross-Chain with Osmosis: Avalanche

Top-tier non-IBC ecosystems are beginning to see the potential of Osmosis as the premier cross-chain DeFi hub and gateway to Cosmos and the interchain.

Avalanche is known for its outstanding business development and user acquisition, as well as for its subnet architecture, which in many ways charts a middle course between the full sovereignty of IBC and the full dependency of Polkadot’s parachain model.

Avalanche subnets are similar to Cosmos zones, with the crucial distinction that their validators must also validate on the Avalanche primary network (minimum stake, 2000 AVAX).

This structure allows subnets to be largely sovereign, with their own token, fees, and virtual machine structure, and to offload the majority of their consensus and networking bandwidth to the P-chain. The Avalanche architecture as a whole allows for 10s of thousands of potential validators and sub-second probabilistic finality. A useful deep-dive can be found here.

Further, subnets can communicate with each other using Avalanche Warp Messaging. Therefore, as soon as an IBC connection is made to one subnet, trustless communication should be possible with all of Avalanche.

Landslide Network is doing exactly that, building an IBC-enabled Avalanche subnet, complete with CosmWasm, expected to launch this quarter. Ultimately, they hope to enable general message passing and native asset swaps between IBC and Avalanche. They plan to bridge the ecosystems and bind them closer together, sharing liquidity, users, and applications. For example, they would like to integrate with Keplr and other Cosmos wallets, and to facilitate cross-chain swaps, they are interested in hosting an Osmosis outpost. 🏯

Going Cross-Chain with Osmosis: Polygon

Polygon has always had a multi-chain thesis, but focused early on Ethereum in part to gain access to its users and developers, a focus that has paid dividends in their massive user base and close alliance with Ethereum. With respect to Cosmos, they have always admired the tech — and just as Avalanche has subnets that resemble Cosmos zones, Polygon has Supernets that allow for semi-sharded execution. And, of course, they just launched their mainnet zkEVM.

Polygon is interested in bringing Cosmos closer — merging the builders with the users — and Osmosis, through Axelar’s general message passing, is the key to making that happen.

Much of this communication is likely to take place asynchronously, just as it does in web2. Previously, it has been thought that full synchronicity would be necessary for flash-loan enabled arbitrage and liquidations, so critical to single-chain DeFi. However, developers from Osmosis Labs and other teams are working on flash mints (seen already in ProtoRev arbitrage), a novel mechanism whereby the necessary tokens for an arbitrage or a liquidation can be minted in the local chain environment, as long as they are burned by the end of the transaction. In this way, Osmosis cross-chain outposts, whether in IBC-world or outside, on Polygon or Avalanche or an Ethereum rollup, will be able to facilitate secure, trustless cross-chain DeFi.

Governance Corner

Props are passed or passing unless otherwise mentioned. Voting end date in parentheses.

• Prop 441: Upgrade stOSMO/OSMO, stJUNO/JUNO, and stSTARS/STARS to Stableswap. (Feb. 26)
• Prop 440: Phase out incentives for BUSD. In light of the recent regulatory action against BUSD, and the cessation of BUSD issuance by Paxos, this Proposal would revert Prop 403, thereby removing BUSD from the “Stable” asset category, Prop 404, thereby removing incentives from the USDC/USDT/BUSD “Core Stableswap” pool. It would also revert Props 425–26 (below). (Feb. 26)
• Prop 438: Osmosis Proposal Standards. This prop reiterates the 3-day standard for posting on Commonwealth before putting a proposal on chain, exempting expedited and routine incentive props, as well as chain and IBC software upgrades (this does not include IBC channel openings and closings). Resubmitted proposals (e.g. re-upping external incentives, or re-proprosing a failed prop) are exempted as well, provided an original post at least 3 days old is on Commonwealth. (Feb. 25)
• Prop 437: Approve Phase 1 Integration with Babylon. A signaling proposal that approves sending Osmosis headers to Babylon once its mainnet is live. Babylon will then checkpoint the headers into BTC, and Babylon nodes will serve as oracles for verifying Osmosis nodes. This proposal also signals general but not binding support for Phase 2 (automation and a BABYLON/OSMO swap) and Phase 3 (shorten OSMO unbonding period) integrations. (Feb. 25)
• Prop 436: Allow Apollo Vaults to Break LP Bonds for OSMO/USDC and OSMO/ATOM. This is necessary to allow vault collateral to be liquidated if it falls below a given safety threshold. (Feb. 21)
• Props 433–35: Add OSMO/(w)FTM (#900) to native incentives, as Major asset, and bootstrap incentives. (Feb. 20)
• Props 430–31: Match IST/OSMO (#837) incentives. Recognize IST as a Stable asset & admit DAI/CMST/IST to native incentives as a Core Stableswap pool. 431 passed with heavy abstention. (Feb. 20)
• Prop 429: Remove Exit Fee option from Liquidity Pools.
• Prop 427: Initial IBC Rate Limits. To be implemented in a future software upgrade. The initial limits are: 30% in/out within 24 hours, and 60% in/out within 7 days. These limits are for the assets with the highest liquidity on Osmosis: ATOM, USDC, WBTC, WETH, EVMOS, STARS, DAI, JUNO, CRO. (Feb. 18)
• Props 425–26: Native Incentives and Bootstrapping for OSMO/BUSD (#879). (Feb. 12)
• Prop 424: Incentive Matching for ATOM/stkATOM Stableswap Pool. Passed with heavy abstention. (Feb. 11)
• Prop 421: ProtoRev Revenue Allocation. Delays action on distributing ProtoRev profits until after June 1st. Revenue will accumulate in the module until governance decides how best to spend it. (Feb. 07)
• Prop 420: OSMO/WYND Token Swap for Protocol Liquidity. Token swap with Wynd Protocol to provide protocol-owned liquidity for OSMO/WYND on both protocols. The swap is for 26,000 OSMO for 85,000 WYND (approx $25,000 of each token). This will be deposited into the pool but not bonded, and it cannot be taken out of the pool for a year, and then only by a governance vote. (Feb. 07)
• Prop 419: Enable Superfluid Staking on OSMO/STRD. (Feb. 07)

— In broader Cosmos governance, it is worth checking out the Confio and Notional funding props on the Hub.

And take note: the fork of Tendermint now being used by most Cosmos chains, including Osmosis, and supported by Informal, the Interchain Foundation, and the SDK team, has been renamed to CometBFT. While Tendermint Core is open-source, Jae Kwon prefers that the teams upgrading it to use a different name. This also gives CometBFT a bit more freedom to experiment if desired, so that it could grow to include Narwhal, Bullshark, Tusk, or Avalanche-style properties.

Many people from Osmosis, the broader Cosmos, and from Avalanche, Polygon, and all over crypto will be at ETH Denver and its satellite events in the coming weeks (Feb. 24 — March 5).

— Sunny is speaking at the Cosmos Interop Summit, and Sunny will be making an announcement.

— Check out the Shared Security Summit on March 2 for more discussion about interchain security vs. mesh security, Babylon, EigenLayer, and more!

Enter the laboratory at Osmosis.zone, the first decentralized exchange powered by the Cosmos SDK and IBC. See our published lab reports at the Osmosis blog, our bench notes at Github and help plan future experiments in our Commonwealth

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